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The hyperbolic forest owner

Author

Listed:
  • Maria M. Ducla-Soares
  • Clara Costa-Duarte
  • Maria A. Cunha-e-Sa

Abstract

This paper examines the implications of quasi-hyperbolic inter-temporal preferences to the Faustman model. The use of decreasing discount rates leads to dynamically inconsistent behavior. To solve this problem a two-stages optimization decision model is developed. The resulting actual cutting time will be anticipated compared to the Faustman optimal cutting time. If, alternatively, the equivalent constant rate of discount is the empirically observed discount rate, then the optimal cutting time is the same, but the present value of profits for the hyperbolic forest owner is always higher than the one resulting from the equivalent constant discount rate. All these results apply to both the single and the multiple rotation problems.

Suggested Citation

  • Maria M. Ducla-Soares & Clara Costa-Duarte & Maria A. Cunha-e-Sa, 2001. "The hyperbolic forest owner," Nova SBE Working Paper Series wp405, Universidade Nova de Lisboa, Nova School of Business and Economics.
    • Handle: RePEc:unl:unlfep:wp405
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    References listed on IDEAS

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    Cited by:

    1. Knoke, Thomas & Paul, Carola & Härtl, Fabian, 2017. "A critical view on benefit-cost analyses of silvicultural management options with declining discount rates," Forest Policy and Economics, Elsevier, vol. 83(C), pages 58-69.

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